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NCBA president tells legislators to butt-out of cattle marketing systems

Beef Central, 03/06/2016

US National Cattlemen’s Beef Association President Tracy Brunner this week testified before the US House of Reps Agriculture Subcommittee on Livestock and Foreign Agriculture.

Mr Brunner, a fourth generation rancher and cattle feeder from Kansas, stressed to the subcommittee that over-regulation posed the greatest threat to the profitability of US cattle producers.

The NCBA has for nearly 120 years represented America’s beef cattle industry, with 30,000 direct and 170,000 affiliated members nationwide.

“Today we ask for no direct action from our government in our cattle marketing systems and forums,” he told the sub-committee hearing.

“The cattle industry relies on the transparency of price discovery to send clear signals up and down the beef supply chain. We have recognised the volatility in the cattle futures market and we are working directly with the CME Group to find ways to address it,” he said.

“Our joint NCBA/CME working group is analysing potential changes to ensure the markets work for producers who are using these tools to manage their market risks. Without futures contract integrity, our industry will abandon the use of these markets as a risk management tool.”

Here is an edited transcript of his testimony:

The beef industry is diverse in structure, yet the drive to stay competitive with other proteins has shown us the need to coordinate among all the stakeholders from field to fork. Cow/calf ranchers tell their seed stock suppliers what they need, and also ask their stocker and feeder calf buyers what they will pay most for.

Cattle feeders likewise look to packer-processors for signals of greatest value, who in turn have an ear for retail and foodservice needs. As a complete beef supply chain, we have learned that without ultimate consumer focus, we can soon blindly produce our way into irrelevancy.

Clear and accurate price signals

Due to the diverse and broad-based nature of the cattle industry operating in an environment of increasing need for coordination and cooperation, we have market needs more unique than other animal proteins and commodities.

We rely on clear and accurate price signals to be passed up and down the beef value chain. A cow/calf producer must have not only precipitation, but also market confidence that his decision to mate a bull and heifer today will be rewarded beyond costs by the time it heads to market nearly two years later.

Cattle grazers and feeders that purchase those calves need a clear view of future prices in order to determine if there is a return on their investment. In addition, packer-processors use price discovery and analysis in order to price beef in a way for consumers to be assured of a constant supply of the highest quality beef anywhere on earth.

Cattle prices have been a topic of focus for NCBA and our members. 2015 saw a record high for cattle prices, but those soon started back down due to several reasons: the increase in overall protein supplies, and the strong US$ which impacted our ability to ship beef to international customers. All of this additional supply puts downward pressure on the markets.

This has been compounded by the break in the drought throughout most of the cattle producing areas of the US, resulting in more abundant and cheaper feed, and the resulting decision by many producers to increase the size of their herds.

Risk management tools that work

Larger supplies always lead to lower prices, but we are used to the ups and downs of the cattle cycle. In order to manage this cycle, we need risk management tools that work.

Price discovery is ultimately driven by supply and demand. The fundamentals of markets are universal. The cattle industry today relies on transparency of price discovery to send clear signals up and down the beef chain.

Cattle and beef are a wonderful but perishable creation. We are not grain that can be stored for great lengths waiting on fundamentals to steady an uncertain market.

We currently rely on market forums like CME Group’s cattle futures contracts as solid information in our price discovery process. Changing technologies and a transition to automated trading in commodity futures trading have increased market volatility, making interpretation of those price signals different than what we were accustomed to in the past.

The integrity of our market forums is very important, for without futures contract integrity our industry will abandon their use. We have recognised the volatility and are working directly with the CME Group to find ways to address it. We have a joint NCBA/CME working group which is analysing potential changes which could slow the market down and ensure a level playing field for producers who are using these tools to manage their price risks.

Today we ask for no direct action from our government in our cattle marketing systems and forums. In fact, I am concerned at some of the action we have seen from USDA and the Senate.

Secretary Vilsack has announced that he is going to dust off the proposed GIPSA marketing rule that resulted from language included in the 2008 Farm Bill. This is concerning to us because bi-partisan efforts resulted in appropriations language which defunded any additional work on, or implementation of, the ideas included in the draft rule.

The provisions in the draft rule would have taken away our ability to market cattle the way we want to. The proposed GIPSA rule would have made USDA the ultimate arbiter of how cattle are marketed. We urge USDA to enforce the Packers and Stockyards Act as it exists now. We do not need them dictating how we can or can’t market our cattle.

I am also aware of the introduction of Senator Grassley’s bill to ban packer ownership of cattle. This is another solution in search of a problem which has been tried, and defeated, many times before.

Over the past decade, USDA’s Mandatory Price Reporting has shown that only five to six percent of cattle are packer owned. This is not the source for the downward market. We only wish that same tenacity was used to help us address the real problems we have with our Federal government.

We have worked for years to find new and innovative ways to market cattle. Alternative marketing arrangements have been studied by USDA and independent groups, and the results show that these alternatives benefit producers and consumers alike.

Any Congressional or Executive action to interfere will only add to our price problems, not solve them. Solving our price problems relies on addressing the true issues of consequence to our industry.

Beef trade is one of those issues. Globalisation is not feared by the American beef industry, but embraced. In fact we continue to export an increasing volume and value of American beef to destinations worldwide. Last year we exported over 14pc of all finished cattle value, that’s worth over $300 extra for every calf in America

Many of you can likely attest that NCBA is always talking about more market access for the ability to sell more beef. Our beef does compete on the global market, however our industry is not easily replicated globally.

If Congress passes TPP this year, the US beef industry will be one of the biggest winners in agriculture. At the same time, if Congress fails to pass TPP or delays action on TPP, the US beef industry will be one of the biggest losers in agriculture, and here’s why that is the case.

Roughly 80 to 85 percent of the beef we produce is for the American market. American consumers love the rib-eyes, tenderloins, and briskets from our cattle, but not all cuts of the carcass can be sold domestically at a premium.

The small percentage of beef that we export are cuts like tongues and short plates that are not desirable to the American consumer. Rather than send these cuts to a landfill or process them into pet food, we have found that Asia has proven to be a great destination for these cuts.

As a result, we have capitalized on the growing demand for US beef overseas and Japan has become our leading export market. In 2015 the Japanese purchased $1.3 billion of US beef and was one of the leading export markets for beef tongue. Even with a 38.5 percent tariff rate on our beef, we have seen a tremendous growth in export sales to Japan over the past four years and we have been able to gain significant market share because of the quality and price of our beef.

Our leading competitor in the Japanese beef market is Australia. In January 2015 the Japan-Australia Economic Partnership Agreement took effect and gave our leading competitors a 10pc tariff advantage over us in our leading export market. In other words, the Japanese tariff on US beef is 38.5pc and the Japanese tariff on Australian beef is less than 28pc. This disadvantage for US beef in Japan resulted in nearly $300 million in lost sales to Japan in 2015.

The tariff rate advantage for Australia will continue to grow for the next decade unless something is done to level the playing field in Japan. The good news is TPP will level the playing field for US beef in Japan by lowering the tariff rate on US beef to match Australia’s tariff rate, and will continue to decrease to 9pc over 16 years.

This the greatest beef market access ever negotiated into Japan. Japan market access is not the only highlight of TPP. TPP also includes a strong set of rules that prevent governments from putting in place non-science based barriers and technical barriers to trade.

TPP also gives us leverage over countries like Indonesia, Taiwan, the Philippines—all countries who want to join TPP and all are countries where US beef has outstanding issues with market access.

The benefits of TPP are great, but so are the costs of inaction. If the United States fails to enact TPP, then we will send a strong message to our allies in the Pacific Rim that we are no longer willing to lead in the Pacific and the US will simply resign our position of leadership to China regarding international trade and the geopolitical affairs of the Pacific Rim.

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Comments

  1. Philip Downie, 05/06/2016

    The market will sort it out all by itself. REALLY?

  2. Michael Vail, 03/06/2016

    I am sure the legislators here in Australia will read this article, and take heed of the canary …

    The market will sort it out; eventually. Government interference just distorts the market: any market.

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